How our client increased margin by 71%.
A case study by Barry Chapman, Managing Director at Chalkstring.
I want to share with you how one of our clients recently used Chalkstring to inflate their final margin significantly – from 10.9% at tender to 18.6% at completion – on a large multi-million-pound construction project. Delivered by a small, efficient team, our client benefited from the powerful profit-enhancing features in Chalkstring, our project cost management software.
This article explores five simple ways in which they were able to squeeze additional profit:
1. A ruthless post-tender review once the contract was secured
2. Maximising their margins on instructed variations
3. Maintaining a tighter control over their supply chain
4. More informed & strategic decision making
5. Improved efficiency, productivity and automation
She who must not be named
Before we get started, I just want to address the fact our client will remain anonymous. As a specialist subcontractor working directly for Tier 1 main contractors, I’d imagine that you too probably wouldn’t want me shouting from the rooftops that you’re making such high profit margins – after all, your clients might read this and think they pay you too much.
For that reason, my client and I have agreed that I’m not going to mention their name or the project by name but – and you’ll have to trust me here – this is genuinely based on a real project and here’s how it was done.
Alex (*not her real name), the project QS, was given a £7.8m drylining, firestopping and screeding project for a 1,380-bed residential apartment development. The works comprised 11 simultaneous work packages, across several phases, priced on a re-measure contract lasting 18 months on site. The project team was very small considering the project value, and comprised the following roles:
For a number of reasons, our client was particularly keen to win this contract and so, confident from past experiences that Chalkstring would help them increase their margins post-contract, their estimator used Chalkstring to prepare a very keen tender a forecast project margin of 10.9%. Other subcontractors couldn’t come close to this price and so the job was theirs. Now Alex and her team needed to not only deliver the project but significantly increase the overall final margin, something that was achieved with Chalkstring by doing the following:
1. Performing a ruthless post-tender review
Using Chalkstring, our client was able to easily re-cost the job to maximise buying gains. Extra margin was generated by swapping to cheaper brands and products within spec, all of which are contained within Chalkstring’s extensive database of materials and prices. They were also able to generate supplier quote requests and directly compare alternative supplier’s like-for-like quotes, resulting in significant margin increases from a powerful but simple value engineering exercise.
2. Ensuring margin was maximised on variations
In total, the project ended up with more than £1.5m of agreed variations. Put simply – Chalkstring ensured that every change to the project scope was captured and charged by the commercial team as a substantiated variation. Nothing slipped through the cracks, and the ability to log issues onsite enabled them to provide photos as evidence to substantiate claims where needed. Using Chalkstring’s unique pricing functionality (a range of current supplier prices at Alex’s fingertips enabling her to ‘price high and buy low’ within Chalkstring) she was able to yield a substantially higher margin on the variations, which contributed to lifting the average margin across the whole project.
3. Maintaining tighter control over the supply chain
With over 200 incoming monthly subcontract labour applications to process during the project lifecycle, Chalkstring made light work of enabling these claims to be electronically checked and approved, as well as automatically cross-checked against recorded site progress to highlight any overbooking. The result was a saving of 5% against projected labour costs, equating to a whopping £389k.
Using Chalkstring, our client was also able to reduce material costs by 1.3% simply by eliminating over ordering, using accurate waste allowances and highlighting invoice errors. This saved the project a further £107k.
3. Enabling more informed & strategic decision making
Because Chalkstring continually displays easy-to-understand live job cost reports that track progress in real-time, the management team was able to scrutinise project performance at granular level in terms of progress, costs, revenues and projections. Having this amount of information so visible at progress review meetings enabled the team to identify potential issues early on and mitigate against them, as well as make critical decisions confidently.
5. Improving efficiency across the project
On a contract of this size, the sheer volume of financial admin could easily have swamped such a small project team. However, because they were using an integrated system that enabled access to all financial information onsite and offsite, plus some serious productivity tools, each member of the team was able to work efficiently with the latest up-to-date project information, as well automating purchase orders, valuations, applications, CVRs etc.
Risk of human error was greatly reduced, and hours of admin time was saved by everyone having the same data at their fingertips – such as order costs, delivered quantities and invoiced values, thereby reducing the number of queries to and from site. Chalkstring’s efficiencies made it possible for our client to manage a project of this magnitude with a visiting commercial manager, rather than needing a resident surveyor.
For many contracting businesses, ensuring good margins can typically be a challenge, let alone increasing margin by over 7% from tendered figures. In the real-world it’s often hard to keep on top of the day-to-day changes in project scope and the associated impact on materials, labour, variation claims and admin.
Every day we see first-hand how subcontractors struggle to know exactly what materials they need for their ever-changing project scope, resulting in over-ordering, invoices being paid “on a wing and a prayer” (as they don’t know what’s been delivered), labour costs spiralling due to over-booking and limited visibility of final projections and other key metrics. CVRs are fine in principle but are only created once a month, are out-of-date the next day and take a lot of wasted time to produce.
Many subcontractors we speak to admit that their core issues come down to a lack of adequate systems, and over reliance on personalised and disjointed spreadsheets that can’t begin to give this level of power, control and intelligence.
Our client’s lean project team has demonstrated in this case study how it’s possible to streamline projects and impact margins by using an integrated project cost management system, like Chalkstring. There’s no reason why you too couldn’t gain more control, reduce admin burden, drive margins up and deliver more projects, more confidently, with less resource. If you’re not harnessing this technology, you can be certain your competitors are.